It’s an easy thing to get confused with all of the initialisms floating around for investment account types in Canada.  This document will run through the most common investment account types and provide a short description of their key features.

All of these account types can be thought of as the different “buckets” that your investments are held in.  For example, you do not “invest in a TFSA”, you contribute to a TFSA and then make the investment inside of that account type.

The three most common accounts an investor will encounter are the RRSP / RRIF account, the TFSA, and the NREG account.

RRSP – Registered Retirement Savings Program – this is a tax-deferred account, where any capital gains/losses or income earned inside the account is not taxable.  Contribution room is accumulated at a rate of 18% of earned income, and contributions are deductible against taxable income.  As the investor gains a tax deduction with contributions made to the account, the reverse is true on withdrawals – all withdrawals are taxable as regular income.  Most importantly, any withdrawals are not replaceable in the future; the original contribution room is permanently lost.

RRIF – Registered Retirement Income Fund – this is the “second stage” of the RRSP, which is created when the RRSP is required to convert to a RRIF in the year an investor turns age 71 (you can also convert early).  Like the RRSP, this is a tax-deferred account, where any capital gains/losses or income earned inside the account is not taxable.  The investor is required to take an annual minimum payment from the account.  Withdrawals are taxable as regular income.

TFSA – Tax-Free Savings Account – this is the only truly tax-free account.  Contributions are not deductible against taxable income, but all gains/losses and income earned inside the account are tax-free, and most importantly, withdrawals are tax-free.  New contribution room becomes available each year for all Canadians 18 and older, currently at a pace of $7,000 per year.  As a valuable additional feature (and unlike the RRSP), withdrawals taken from the TFSA are re-added to contribution room in the following calendar year.

NREG – not a “standard” initialism, but this is the shorthand for a non-registered / taxable account.  Capital gains / losses and income are all reflected as income (or income offsets) in annual tax returns.

Other account types that you may hear about include:

LIRA / LRSP / LIF – Locked-In Retirement Account / Locked-In Registered Savings Plan / Locked-In Income Fund – a tax-deferred account that results from commuting an earned pension.  This is nearly identical to the RRSP / RRIF, except you cannot make additional contributions, and LIF withdrawals have annual maximums as well as annual minimums.

RESP – Registered Education Savings Plan – a tax-deferred account specifically for post-secondary education, with government grants available for contributions. Contribution rules can be complex.

FHSA – First Home Savings Account – a tax-deferred / tax-free account specifically for people saving to buy their first home.  If a withdrawal is made for the purchase of a first home, the withdrawal is tax-free.  Contribution rules are complex, and rollover options exist to use the account if an investor decides not to purchase a home at all.

RDSP – Registered Disability Savings Plan – a tax-deferred account specifically for individuals and families supporting a disabled person.  This account is quite complex and has a variety of contribution rules that are linked to individual or family income. Can be thought of as a “super-charged” RRSP.

A variety of other accounts do exist, but most are variations on the account types above, such as a Group RSP, Defined Contribution Pension Plan (DCPP), or Pooled RESP.

If you have any questions about your account types and how to use them most effectively, please reach out to me directly.

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Matthew Mantle, CFA, CFP®, CIM® (He / Him)

Portfolio Manager and Financial Planner

m. 403-980-9946

e.  matthew.mantle@foundationwealth.ca

w. Perspective Planning Group

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Foundation Wealth Partners

Prairies Regional Office